Highlights: BFAP agricultural outlook

In August this year, the Bureau for Food and Agricultural Policy (BFAP) launched its annual BFAP Baseline: Agricultural Outlook. The 2018 – 2027 baseline was launched at the Diep in die Berg conference centre in Pretoria. The baseline once again takes the latest trends, policies and market information into consideration and is constructed in such a way that the decision maker can form a picture of equilibrium in agricultural markets, given the assumptions made.

To kick off the launch, BFAP unveiled their new brand image and marketing channels to show how far the organisation has come and where it is going. This was a great way to celebrate the organisation’s #15YearsOfResearchExcellence.

Dr. Tracy Davids, who is part of the BFAP’s Commodity Markets and Foresight team, took attendees through the outlook for South African agriculture during the launch. His presentation gave a detailed breakdown of integrated markets, food prices and farm level analyses.

Below is a summary of different industries and their outlooks for the next base period.

Outlook for field crops

This outlook looks at summer and winter grains which include maize, sorghum, barley and wheat, oilseeds which include soya bean, sunflower canola and a projection on sugar production.

Summer and winter grains: Over the course of the next decade, demand growth prospects for white and yellow maize differ due to differences in the underlying consumption trends. White maize is usually consumed as food and yellow maize consumption accrues to most animal feeds. Predictions show that the demand for yellow maize will grow much faster over the next decade, than that of white maize. However, there will be sufficient yield gains in white maize to supply a fairly stagnant demand.

The South African sorghum industry is expected to remain a net importer over the outlook period, with prices continuing to trade closer to import parity levels. Sorghum demand will remain stagnant with limited gains as a result of population growth rather than per capita consumption growth.

Going forward, the renewed, if somewhat cautious optimism regarding economic and income growth with an expanding population is expected to support wheat consumption growth of 1,2% per annum over the next decade. With little change in the national wheat area projected for the next ten years relative to 2017, continuous yield gains are expected to support production growth of 1,8% per annum.

Oilseeds: Looking at the soya bean outlook, the area cultivated under soya is projected to continue expanding by an annual average of 2,9% to reach 962 000 hectares by 2027. In addition to this, projected production growth is underpinned by an average annual yield gain of 2% per annum over the outlook period, which is faster than the yield improvements observed over the past decade. In contrast to soya beans, the sunflower production area is expected to decline marginally over the outlook period, yet additional demand will be comfortably met by increasing yields. Sunflower yields are expected to increase by 2,2% per annum over the outlook period, reaching 1,65 tons per hectare by 2027. The area cultivated under canola is projected to increase by an average 3,2% per annum to 115 000hectares by 2027. The average yield is projected to increase to 1,67 tons per hectare resulting in a projected harvest of 192 000tons in 2027.

Sugar: Due to dwindling profit margins in the sugar industry, several farmers are moving away from sugarcane and it is expected that the sector will lose a further 20 000hectares over the outlook period with less re-establishment of cane on marginal lands. Furthermore, an import tariff that could result in higher local market prices could lead to industrial sugar users increasing the rate at which alternatives are being considered and used. Due to the growing middle-class and increasing population, domestic consumption is projected to remain stagnant over the outlook period.

Meat: In light of expected income growth over the coming decade, meat consumption is projected to continue on an expanding path. Chicken consumption is projected to further accelerate, expanding by 27% over the next ten years. Consumption of mutton and lamb, which is usually the most expensive, is only projected to expand by 11% by 2027 relative to the 2015 – 2017 base period. Despite its shorter production cycle, mutton and lamb production is expected to trade largely sideways through 2018 and 2019, reflecting the first significant increase in 2020. Over the outlook period, production is expected to expand by an annual average of 1,4%.

The South African beef industry has successfully moved into a net exporting position, following South Africa being declared free of foot and mouth disease. By 2027, beef production is expected to expand by 25% relative to the base period of 2015 – 2017 to exceed 930 000tons.

The pork industry is relatively small compared to other meat industries in South Africa and pork consumption accounts for only 7% of total meat consumption in South Africa. In 2018, the industry was hit by the outbreak of listeria, which resulted in some pork processing facilities to be temporarily shut down. However, based on the assumption that the affected facilities will resume and return to production, the pork-to-maize price ratio is expected to stabilise at a level well above that of the recent past, supporting production growth of almost 3% per annum over the next ten years.

Wool: Globally, the demand for wool has expanded by just under 2% per year since 2007. The volume of South African exports has increased and the average price attained for exports has also improved. China supported growing affluence in the general population, underpinning the demand for wool products, which is perceived as a luxury product. The conscious shift to a more consumer-based economy is expected to support the demand for wool going forward.

Eggs: Because of the outbreak of Avian influenza (AI), the poultry industry saw a great loss in the culling of birds, which at national level, was almost 20%. Egg-to-maize ratios are expected to hit an all-time high by the end of 2018, suggesting that those producers who were not affected by AI will do well in this climate. Though the baseline is derived from the assumption that AI is contained going forward, production is projected to expand by an annual average of 2% per year from currently reduced levels. Once this increased supply enters the market, egg-to-maize price ratios are expected to decline towards 2020, before trending upwards once more over the latter years of the projection period.

Milk and dairy: The South African milk and dairy market can be disaggregated into two segments: liquid milk products which account for over 60% of total dairy consumption and concentrated milk products, which include cheese, butter, milk powders, etc. which make up the remaining 40% of dairy consumption. Over the next base period, consumption of liquid milk products is expected to increase by an average of 1,4%, while consumption of concentrated products is expected to increase by more than 2%. Total milk consumption is projected to increase by an annual average of 1,9% – a rate that is similar to growth.

Outlook for horticultural products

Horticultural crops include vegetables, fruit and nuts. The outlook below focusses on these groups of crops for the next ten-year base period.

Potatoes: For 2018, potato production is projected to increase by 3% to a record harvest of 2,53 million tons after a record harvest of 2,45 million tons in 2017. Since 2008, the formal to informal potato consumption ratio has declined by an average 1,3% per annum. A similar trend is projected for the next ten years albeit at a slower rate. Formal potato consumption is projected to increase by 12% while informal consumption is projected to increase by 22% from 2017 to 2027.

Fruit: The dynamic fruit subsector in South Africa is typically characterised by a combination of crop types produced within a system as a diversified, risk-mitigating strategy.

Pome fruit: Over the ten-year projection period, apple production is set to expand by 5,3% from 940 000 tons in 2017, to 990 000 by 2027. Pear production is expected to expand by a further 1,9% towards 2027 to reach 444 000 tons. Despite the underlying assumption of rainfall patterns returning to normal in the medium term, the severity of the drought’s impact entails that many years will be required for a full recovery. Hence, the apple bearing area is projected to increase by only 0,21% over the outlook period and the pear bearing area is projected to decrease marginally by 0,26% over the same period, to reach 11 326 hectares by 2027.

Table grapes: In order to supply the increased demand in both the export and domestic market, the area cultivated under table grapes is projected to expand by 9,1%, resulting in a production expansion of 10,1% by 2027. Over the course of the next decade, market value is projected to find support from marginal growth in real prices of 1,9% and 4% respectively for the export and domestic fresh markets. The nominal value of exports is projected to increase by 61,6% to approach the 9,8 billion mark, whilst the value of the local market expands by 77,1% to surpass R500 million by 2027.

Stone fruit: Over the projection period, full bearing hectares of apricots are expected to consolidate somewhat, declining by a further 3,1% by 2027 relative to 2017. Regarding peaches and nectarines, production increased fairly consistently for most part of the decade, before retracting in 2016 and 2017. With water expected to remain a constraint in the Western Cape, a slow recovery in area is projected for the next ten years, reflecting an expansion of 2,2% by 2027 relative to 2017. Plum production is only expected to see a marginal increase of less than 1% over the outlook, on a marginally contracted area. Having already declined in 2016, the area under plum production is expected to decline by 2,7% 2027 relative to 2017 levels.

Citrus: The outlook for the citrus industry still presents feasible expansions of all citrus types, but on a significantly slower growth trajectory, particularly over the second half of the coming decade, due to weaker real prices as well as limitations in water and area of suitable expansion potential. By 2027, the area under orange production is expected to increase by 12,1%, with further expansions of 12,9% for soft citrus, 7,7% for grapefruit and 16,1% for lemons and limes. Over the next ten years, growth is also projected to slow as the industry moves closer to an equilibrium in the export market space.

Wine grapes: Since 2010, vines in production reflect a distinct downward decline. The total number of bearing vines in South Africa is expected to further decline to levels of 198 million vines in 2027. During the 1990’s, the ratio of white to red started at 84:16, before moving to 56:44 by 2015, where it has remained. However, on the basis of vine orders to be planted during the next three years and onwards, it is clear that the percentage of white vine cultivars on order for planting is starting to increase. This could start swinging the vineyard production of white to red back to at least a 60:40 ratio as simulated in the baseline.

Food inflation: 2018 and beyond

After a wave of severe drought-induced food inflation, South African consumers found some relief on the back of a rebound in crop production, with food inflation losing pace since the beginning of 2017. Going forward, food inflation is expected to increase, albeit not substantially, until the end of 2019. Projections for the next ten years show that food inflation is expected to stabilise just below 5,5%. – Ntswaki Motaung, AgriOrbit

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